Equity Weekly. Equity Research. Top company and macro news

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1 Equity Research 6 October, 2017 Equity Top company and macro news Apranga: Plans are made only to be changed Tallink: Upward trend in traffic volumes Mixed markets While the main US indexes are pushing new all-time highs, Baltic indexes have been declining for several weeks now. NASDAQ OMX Tallinn index decreased by 0.74% w/w and closed at points. Trading volumes were really modest and most traded stocks were again Tallink (-2.8% w/w) and Olympic Entertainment Group (-0.5% w/w), both contributing around EUR 0.4m to weekly turnover. Tallink released statistics for September 2017 on Tuesday. The ferry company transported 724,369 passengers (+2.7% y/y) and the number of cargo units increased by 8% to 33,010 units. The number of passenger vehicles amounted to 85,024 units (-9.2% y/y). Tallink s share price ended week at EUR 1.03, while Olympic finished at EUR 1.82 on Friday. turnover in Tallinn amounted to EUR 1.4m (-33%w/w). The NASDAQ OMX Riga index closed at points on Friday for a total weekly change of -0.19%. There was no notable news released by the key companies and this is the reason why the past week was quite inactive in most shares. By far the most actively traded share in Riga this week was Grindeks. The total weekly trading turnover in Grindeks reached EUR 210,350 with the company s share price down by 7.12% w/w. The NASDAQ OMX Vilnius index increased by 0.35% w/w with a weekly turnover of EUR 1.0m. Vilkyskiu pienine s share price increased by 7.4% to EUR 3.92 w/w with a weekly turnover of EUR 207,692. The company will present its monthly sales results on Tuesday next week. Klaipedos nafta s preliminary revenues in September were EUR 8.8 m, an increase of 18.9 % y/y. The share price ended the week at EUR 0.517, up by 1.37% w/w. Investor Calendar: Date Issuer/Country Description Period 9 Oct Latvia CPI m/m; y/y September 9 Oct Lithuania CPI m/m; y/y September 9-15 Oct Latvia Unemployment rate September 10 Oct Estonia Imports, exports y/y August 10 Oct Estonia Unemployment rate September 10 Oct Lithuania PPI m/m; y/y September 12 Oct Tallinna Kaubamaja Interim report, 9 months Q3 12 Oct Olympic Entertainment Group Acticity results, 9 months Q3 12 Oct Nordecon Dividend ex-date Baltic Indices Jul 23-Jul 7-Aug 22-Aug 6-Sep 21-Sep 6-Oct Baltic Benchmark OMX Riga OMX Tallinn OMX Vilnius, Swedbank Index value OMX Tallinn 1, % 13.4% OMX Riga % 35.5% OMX Vilnius % 15.3% OMX Baltic Bench % 19.1% OMX Baltic % 10.8% S&P 500 2, % 14.0% STOXX Europe % 8.0% STOXX EU Enlarged % 20.0% RTS 1, % -1.1% Top gainers: Last Close ( ) Vilkyškių pieninė % PRFoods % Olainfarm % Nordecon International % Klaipedos Nafta % Top losers: Last Close ( ) Grindeks % Invalda % Linas Agro Group % Tallink % Siauliu Bankas % Most active: Last Close ( ) Tallink % Olympic Entertainment Group % Siauliu Bankas % Grindeks % Vilkyškių pieninė % Equity Research Large Corporates & Institutions Swedbank YTD Turnover ( th) Turnover ( th) Turnover ( th) October 6, 2017 Please see important disclosures at the end of this document Page 1 of 7 Report was ready at :08 and published at :08

2 Volatility Snapshot U.S equity markets keep grinding higher on tax plan optimism while European investors have their sights on developments in Spain. VIX Volatility Index has been firmly below 10 all week as equities record new highs. OMXB10 Index was modestly weaker for the week while a broader index (OMXBPI) had a positive ratio of gainers versus decliners. Implied volatilities in Baltic shares moved slightly lower. TAL1T bucked the trend as it has seen +- 3% intra-week moves in the past few weeks OMXB10 Index 160 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Close (ls) 1m Realized Volatility (rs) 1m Implied Volatility (rs) 0 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Close (ls) 3m Realized Volatility (rs) 3m Implied Volatility (rs) Implied Volatility Overview (as of close on ) Volatility changes on Most Actively traded Options (as of close on ) YTD Implied Volatility (ATM, mid-market) Last Price Price vs Previous Week Close 1 month 3 months Eurostoxx 50 3, % 9.8% 8.3% -13.5% 12.1% -3.6% S&P 500 2, % 14.0% 6.0% -11.1% 9.2% -6.6% OMX 30 1, % 9.0% 9.7% -1.0% 12.5% 1.6% OMXB % 10.5% 18.7% 0.4% 18.6% -0.3% VIX % -34.5% Source: Swedbank AS estimates and calculations 1M ATM 1M ATM 1M 3M ATM 3M ATM 3M 3M Implied Vol Price Realized Implied ATM Imp. Realized Implied ATM Imp. divided by Vol Vol Vol Vol Vol Vol 3M Realized Vol c2 c5 c6 c7 c9 c11 c12 c14 sortcol APG1L 1.1% 12.6% 15.5% 0.0% 13.0% 15.5% 0.0% 1.19 TAL1T 0.0% 24.6% 22.5% 3.4% 27.4% 22.0% 0.0% 0.80 TKM1T 0.1% 10.7% 17.5% 1.4% 9.4% 17.3% 0.0% 1.84 OEG1T 1.1% 16.2% 16.8% 3.1% 14.2% 16.5% 1.5% 1.16 SFG1T -0.4% 13.7% 20.5% -2.4% 13.7% 21.0% 0.0% 1.54 Source: Swedbank AS estimates and calculations. Implied vols are all mid-market Note: Published OMXB10 Index implied volatilities are computed by Swedbank and are for informational purposes only. Swedbank has not traded the index in the past nor currently plans to do so in the future. October 6, 2017 Please see important disclosures at the end of this document Page 2 of 7

3 Company News Company & expected share impact Positive Neutral Negative Plans are made only to be changed Delayed demand helped sales in September 2017 planned sales growth unlikely to be met Target price trimmed to EUR 2.75 (2.85); Neutral reiterated Some recovery in September On October 2, the leading Lithuanian apparel retailer Apranga, released its September sales figures. Retail turnover (including VAT) increased by 6.1% y/y, to EUR 20.2m, helped by the increase in operating area (+3.0% y/y) and the increase in sales efficiency (+2.3% y/y, calculated as retail turnover per sqm). According to the company, sales in September were mostly helped by delayed demand from the preceding two months, which were relatively weak. On the other hand, relatively sunny and warm weather in September had some negative effect on customer traffic. Apranga Recommend. ( ): Neutral Target Price ( ): 2.75 Price ( :37): 2.62 Analyst: Andrej Rodionov, CFA Tel: Focus on store network optimization In Q3 2017, Apranga opened two stores (Aldo in Vilnius and Weekend MaxMara in Klaipeda) and closed two stores (Mango in Tallinn and Armani Jeans in Vilnius). The company s store network has been relatively unchanged at 182 stores for the past four quarters reflecting the lack of available premium retail space as well as Apranga s focus on its store network optimization in order to counter mounting wages and rents. We expect the optimization to continue in the coming quarters. Planned sales growth unlikely to be met We calculate that Apranga s sales growth (excluding VAT and including the contribution from Mango stores) in the first nine months of 2017 was around 5% y/y, below the company s plan of 7.4% for Consequently, we cut 2017e sales, recurring EBITDA and net profit (adjusted for EUR 3.4m gain on sale of the old office in Kirtimai) by 2%, 3% and 5% respectively. We trim our target price to EUR 1.75 (1.85), which values Apranga at a recurring 2017e EV/EBITDA of 7.0x and a recurring P/E of 12.7x, in line with the respective averages for the past five years. We reiterate our Neutral recommendation. October 6, 2017 Please see important disclosures at the end of this document Page 3 of 7

4 Upward trend in traffic volumes Traffic volumes grow due to extra capacity on the Riga route Increased competition continues to impact Helsinki-Tallinn line EUR 1.15 target price, Buy recommendation (Neutral) September traffic reflects the main trends of 2017 Tallink s September traffic statistics reflected the main trends of 2017 ytd: The added capacity on the Riga-Stockholm route pushes consolidated volumes higher, while Viking Line s added FSTR vessel takes market share on the Helsinki-Tallinn route. As the capacity on the Riga-Stockholm was nearly doubled in December 2016, the ytd 52% increase in passenger volumes and 62% increase in cargo volumes imply a decline in the segment s load factors and profitability. In the Finland-Estonia segment, the capacity figures were more or less comparable y/y, with the exception that MS Superstar was replaced by MS Megastar. The 5% decline in traffic volumes in September suggests continued loss of market share to Viking Line. Viking Line continues the FSTR operation through October, but its intentions for 2018 have not been disclosed. Contrary to the Riga-Stockholm line, the Tallinn-Helsinki line has used lower capacity in 2017, while ytd passenger traffic has declined by 1%, suggesting improvements in utilization and lower costs. Tallink Recommend. ( ): Buy Target Price ( ): 1.15 Price ( :37): 1.04 Analyst: Marek Randma Tel: Recent share price retreat offers upside As the September figures were in line with our estimates and the traffic ytd, we do not make major changes to our estimates. Our 2017e EBITDA growth of 6.4% is largely based on the margin recoveries of the Finland-Estonia and Finland-Sweden segments, which in 2016 were spoilt by overcapacity and one-off events. Our 2018e EBITDA decline of 7% is based on lower revenue from the chartering of vessels, as two of the three Superfast vessels will be sold. Our assumptions imply 2018e EV/EBITDA of 7.3x, P/B of 0.8x and a jump to 14% FCF from 2018e due to drop in investments. We maintain our target price at EUR 1.15, but increase our recommendation to Buy (Neutral), as the share price s recent retreat has left some upside to fair value, in our view. October 6, 2017 Please see important disclosures at the end of this document Page 4 of 7

5 Baltic Equity Trading Statistics Swedbank Baltic Coverage Last* Reco. Return Name GICS Sector/ Sub-Industry Country Price ( ) Target ( ) Upside/ Downside Reco. Release Date Reco. Issuer** M.Cap, meur 1w 1m 6m YTD 52w 3m Avg. Daily Turnover th 52w Volatility Apranga Apparel Retail LT % Neutral LT 147 0% 0% -3% 2% 2% 34 14% Baltic Horizon Real Estate EE % Buy LT 84-1% -1% 2% -2% -1% 9 LHV Group Diversified Banks EE % Neutral LT 286 1% -4% 17% 14% 50% 58 18% Linas Agro Group Agricultural Products LT % Reduce LT 109-2% -6% 5% 7% 4% 17 Merko Ehitus Construction & Engineering EE % Neutral EE 169 0% -1% 5% 6% 16% 18 16% Nordecon International Construction & Engineering EE % Buy EE 44 3% 4% 4% 2% 12% 12 Olainfarm Pharmaceuticals LV % Buy LT 144 4% 1% 9% 22% 24% 31 17% Olympic Entertainment Group Casinos & Gaming EE % Buy EE 276-1% -2% 2% 2% 1% % Siauliu Bankas Diversified Banks LT % Strong Buy LT 256-1% 1% 29% 51% 83% % Silvano Fashion Group Apparel Retail EE % Neutral LT 97 0% -4% -7% -11% 25% 50 25% Tallink Marine EE % Buy EE 694-2% -8% 10% 14% 15% % Tallinna Kaubamaja Food Retail EE % Reduce EE 390 0% -1% 9% 16% 28% 56 16% Tallinna Vesi Water Utilities EE % Neutral EE 248 0% -1% -11% -10% -11% 52 13% *Date for prices: 6 October :37 Source: Swedbank LC&I, Nasdaq OMX ** EE=Swedbank AS (Estonia), LT=Swedbank AB (Lithuania) Baltic Equity Fundamentals Swedbank Baltic Coverage Div. Div. Net Bloomberg EV P/E P/E P/E P/BV P/BV P/BV P/S P/S P/S EV/ EV/ DPS Yield Yield EBITDA Operating Debt to Name ticker meur F 2018F F 2018F F 2018F EBITDA Sales ROE ROA EUR F margin margin EBITDA Apranga APG1L LH % 19% % 6% 11% 8% -0.3 Baltic Horizon NHCBHFFT ET nm 11% 5% % 7% 76% 76% 9.9 LHV Group LHV1T ET % % 2% Linas Agro Group LNA1L LH % 4% % 0% 3% 2% 4.6 Merko Ehitus MRK1T ET % 3% % 5% 4% 3% 1.1 Nordecon International NCN1T ET % 5% % 4% 3% 2% 1.6 Olainfarm OLF1R LR % 8% % 5% 22% 17% 0.9 Olympic Entertainment Group OEG1T ET % 23% % 8% 18% 12% -1.0 Siauliu Bankas SAB1L LH % % 0% Silvano Fashion Group SFG1T ET % 30% % 8% 32% 29% -1.2 Tallink TAL1T ET 1, % 5% % 5% 16% 8% 3.2 Tallinna Kaubamaja TKM1T ET % 8% % 6% 8% 6% 1.5 Tallinna Vesi TVEAT ET % 12% % 6% 53% 42% 2.0 Source: Swedbank LC&I, Nasdaq OMX

6 Background Information: Recommendation structure Large Corporations & Institutions recommendation structure consists of six recommendations: Buy, Accumulate, Hold, Reduce, Sell and Avoid. The recommendations are based on an absolute return for the security 12 months forward. The absolute return includes share price appreciation and dividend yield combined. The recommendations for the securities mentioned in this report are based on risk and return considerations. The higher the risk category of the investment, the higher the required return. For equity investments, returns are defined as capital appreciation and dividends received over the investment horizon of 12 months forward. The expected capital appreciation is the ratio of a stock s target price over the current price. A company risk rating depends on its stock price volatility, liquidity and business outlook. The target price depends on a company s fundamentals as well as the market valuation of peer stocks, and can be changed at any time if the relevant changes occur within a company/market perception of the peer group. Buy, accumulate, hold, reduce, sell and avoid recommendations may be used in this report. The table below presents the relationship between recommendations and target prices compared to risk level of the stock. These are indicative ranges and actual recommendations may deviate from the indications if other relevant issues are considered. Strong Buy (SB) The absolute return is estimated to be in excess of 15% Buy (B) The absolute return is estimated to be between 5% and 25% Neutral (N) The absolute return is estimated to be between 0% and 10% Reduce (R) The absolute return is estimated to be between 5% and -10% Sell (S) The absolute return is estimated to be less than -5% Share price target Our expectations of the absolute return on a 12-month horizon The recommendation by Large Corporations & Institutions Equity Research department is based on a variety of standard valuation models. However, the base for the calculation of the target price is our DCF model (DCF = discounted cash flow) with the exception of financial and investment companies. The DCF model discounts future cash flow at present value. In preparation of this report different valuation methods have been used, including, but not limited to, discounted free cash-flow and comparative analysis. The selection of methods depends on the industry, the company, the nature of the stock and other circumstances. The target price (previous fair value) takes into account the DCF value, the relative valuation of the share versus others peers (national or international) and news that can have a positive or negative effect on the share price. Relative and absolute multiples that we consider are: EV/EBITDA, EV/EBIT, PE, PEG and Net Asset models for companies with liquid markets for their assets and other industry specific ratios when available. Break-up valuation models are also sometimes considered. For Swedbank s previous recommendations please follow the link: Recom mendations by the No of shares (*) Part of total Strong Buy 1 8% Buy 5 (3) 38% Neutral 5 (2) 38% Reduce 2 (1) 15% Sell 0 0% * Recommendations issued by Swedbank AS Neutral 38% Sell 0% Reduce 15% Strong Buy 8% Buy 39% October 6, 2017 Please see important disclosures at the end of this document Page 6 of 7

7 Information to the customer Issuer and recipients This research report contains previously published research (or excerpts from it) and recommendations that have been produced by two different Swedbank Group entities: Swedbank AS, under the supervision of the Estonian Financial Supervision Authority (Finantsinspektsioon), has issued research on: Merko Ehitus, Nordecon International, Olympic Entertainment Group, Tallink, Tallinna Kaubamaja, Tallinna Vesi; Swedbank AB, under the supervision of the Bank of Lithuania, has issued research on: Apranga, Baltic Horizon, Ekspress Grupp, LHV Group, Linas Agro Group, Olainfarm, Siauliu Bankas, Silvano Fashion Group. For full research on the relevant issuers, please contact your salesperson or the covering analyst. This report by Large Corporations & Institutions Equity Research is disseminated by Swedbank AS ( Swedbank ). Swedbank is under the supervision of the Estonian Financial Supervision Authority (Finantsinspektsioon). 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